In my last post I wrote about the launch of the EA Impact Investing Report commissioned by CMA and the Rockefeller foundation. I got my hands on it a couple of days ago, and I was not disappointed.
The report looks at the ICT industry in its entirety from startup to growth to maturity, and is concise with each item looked at properly queried and recommendations given. I will look at the chapters two and three and then the last three chapter in conclusion in the subsequent post.
ICT SECTOR IN EA
Broadly, the EA ICT industry is segmented into four; Telecoms, Software, Hardware and IT enabled services, with the software segment being the largest, followed by a significant telecoms segment. The industry can be said to be at the start-up/early stages as majority of the firms are small and medium sized.
The telcoms segment accounts for a majority of the ICt sector’s revenue, upto 90% as this is where the telephony service providers are. With the penetration of the mobile phones in the region cuopled with the attendant usage, this explains its share of the revenue pie. Regionally, growth in the ICT sector has been mainly driven by this segment.
This segment mainly comprises of local repsentatives of international manufacturer, eg HP, IBM, both as resellers and distributors. Most of these are mature companies and there is high level of competition in this segment. It is also a high volume-low margin industry. Another thing to note is that there is virtual no PC assembly done in EA and so this firms will need to look at emerging and alternative business models to further grow.
This holds the largest number of ICT firms operating in the region accounting for approximately 67%. This are small outfits developing proprietary and non-proprietary software and some customizing the same. Due to their sizes the face typical SME challenges of lack of proper financial and reporting systems. This hinders their growth prospects.
Information Technology (IT)enabled services
Herein lie the Business Process Outsorcing firms, in EA the BPO industry is not fully developed but is growing rapidly as compared to the international scene. It is relatively new and as the industry grows worldwide it is expected that they same will happen in the region.
FINANCING OF THE ICT SECTOR
Below is a table illustrating sources of financing in the industry, in the region
From the above it is clear that majority of the firms were started from internal loans ie loans from the owner, friends and family. This is something that is prevalent in most SMEs and not specific to the industry.
Challenges faced by firms is accessing finace/capital were noted as:
- Lack of Collateral
- Risk profile
- Irregular Cashflows
The report goes into depth analysing this challenges and offfers recommendations on how to overcome them.
You can download the report here.